Emerging Stocks Rise as Brazil Rebounds; Micex Gains on Ukraine

Zahra Hankir and Lyubov Pronina

October 28, 2014 — 2:55 AM EDTOctober 28, 2014 — 6:38 PM EDT

Emerging-market stocks rallied the most since August as Brazil’s Ibovespa rebounded after President Dilma Rousseff’s re-election sent valuations to a six-month low. The Micex rose as Russia’s acceptance of Ukraine’s parliamentary vote fueled speculation that sanctions will be eased.

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The Ibovespa surged 3.6 percent following a 2.8 percent slide yesterday. The Shanghai Composite Index jumped 2.1 percent, halting the longest losing streak this year, as President Xi Jinping signaled a nationwide expansion of free-trade zones. Stocks in Moscow rose to a three-week high. The ruble weakened on concern Russia will quicken its move to a free float after more than $20 billion of currency interventions this month failed to halt its drop.

The MSCI Emerging Markets Index climbed 1.5 percent to 992.54. Xinhua News Agency cited Xi as saying Shanghai’s free-trade zone can be replicated in other places. Brazil’s index traded yesterday at 10 times estimated earnings for the next 12 months, the lowest level since April.

“Brazil had sold off heavily into the elections as it became increasingly likely that Dilma was going to win,” Nathan Griffiths, senior portfolio manager of emerging-market equities at ING Investment Management in the Hague, said by e-mail. “For now Dilma’s win, however bad for the economy, was in the price.”

The developing-nation measure has fallen 1 percent this year and trades at 10.7 times projected 12-month earnings, data compiled by Bloomberg show. The MSCI World Index has risen 1.4 percent in the period, and is valued at 14.7 times.

Micex Rallies

Brazil’s real strengthened 2.4 percent against the dollar, rebounding from a nine-year low, while the Ibovespa rose to 52,330.03. Assets in the country plunged yesterday on concern that Rousseff’s second four-year term will fail to bring relief to an economy marred by recession and high inflation.

The Micex Index advanced 1.5 percent in Moscow. OAO Magnitogorsk Iron & Steel rallied 6 percent to the highest level since March 2013 as the Russian steelmaker said it’s changing its dividend policy to use free cashflow as the basis for payouts.

Russia will recognize the results of Ukrainian elections, in which pro-European Union parties won enough seats to gain a two-thirds parliamentary majority, Foreign Minister Sergei Lavrov said in an interview with Izvestia newspaper.

The ruble weakened for a fifth day, losing 0.4 percent. The Bank of Russia boosted foreign-currency sales this month, with the most recent data showing it sold $2.44 billion on Oct. 24, as it sought to slow the ruble’s decline amid a dollar shortage exacerbated by sanctions and dropping oil prices. The finance ministry canceled tomorrow’s bond auction, it said on its website today.

China Speculation

The Shanghai Composite Index fell for five days through yesterday, driving valuations to the cheapest level in a month, amid concern the start to an exchange link between Shanghai and Hong Kong may be delayed. It added the most since July 28 today.

The central bank injected about 200 billion yuan ($32.7 billion) into some national and regional lenders, a government official familiar with the matter said Oct. 17.

Speculation “about the People’s Bank of China injecting liquidity or even planing to lower interest-rates or minimum-reserve rates” helped fuel a rally in Chinese equities, Leopold Quell, a co-fund manager at Raiffeisen Capital Management in Vienna, said by e-mail. Still, “the strong day today was a one-hit wonder. There is no quick fix for the economic problems in China,” he said.

The rupiah weakened for a fifth day on concern Indonesia will delay fuel subsidy cuts after Finance Minister Bambang Brodjonegoro said the issue wasn’t discussed at the cabinet’s first meeting yesterday.

The premium investors demand to own developing-nation debt over U.S. Treasuries narrowed seven basis points to 301 basis points, according to JPMorgan Chase & Co. indexes.